Act on Special Measures Concerning Taxation

Where a resident or nonresident who has a permanent establishment who has, on or after April 1, 2003, acquired (excluding an acquisition to which the provisions of the main clause of Article 29-2, paragraph (1) are applied; the same applies hereinafter up to Article 37-13-3) by payment (limited to payment made upon the issuance of the shares; the same applies hereinafter up to that Article) the shares specified in the following items (hereinafter referred to in this paragraph, paragraphs (3) and (5), and that Article as "specified shares") according to the category of stock company listed in each of those items (hereinafter referred to in this paragraph and Article 37-13-3, paragraph (1) as a "specified small and medium-sized company") (excluding a person who, on the day of that acquisition, was such a shareholder in the case where the specified small and medium-sized company would fall under a family company prescribed in Article 2, item (x) of the Corporation Tax Act if that person were selected as a shareholder forming the basis for the determination, or any other person specified by Cabinet Order) has acquired those specified shares by payment, with regard to the application of the provisions of Article 37-10, paragraph (1) and Article 37-11, paragraph (1), pursuant to the provisions of Cabinet Order, in calculating the amount of capital gains, etc. on general shares, etc. prescribed in Article 37-10, paragraph (1) or the amount of capital gains, etc. on listed shares, etc. prescribed in Article 37-11, paragraph (1) for that year, the total of the amounts specified by Cabinet Order as the amounts required for the acquisition of the specified shares acquired by that payment during that year (limited to those specified by Cabinet Order as being held on December 31 of that year; hereinafter referred to in this Article as "deductible specified shares") (hereinafter referred to up to paragraph (3) as the "deductible acquisition cost of specified shares") (where the total of the amount of capital gains, etc. on general shares, etc. before application (meaning the amount of capital gains, etc. on general shares, etc. prescribed in Article 37-10, paragraph (1) as calculated without applying the provisions of this paragraph; the same applies in the following paragraph) and the amount of capital gains, etc. on listed shares, etc. before application (meaning the amount of capital gains, etc. on listed shares, etc. prescribed in Article 37-11, paragraph (1) as calculated without applying the provisions of this paragraph; the same applies in the following paragraph) (hereinafter referred to in this paragraph and paragraph (3) as the "total amount of income from transfer, etc. of shares, etc. before application") is less than the total of the deductible acquisition cost of specified shares, an amount equivalent to that total amount of income from transfer, etc. of shares, etc. before application) is deducted:

a stock company that falls under a specified new small and medium sized enterprise prescribed in Article 6 of the Act on Strengthening the Management of Small and Medium-Sized Enterprises, etc.: shares issued by that stock company;

a stock company among domestic corporations for which 10 years have not elapsed since the day of its establishment (limited to one that satisfies the requirements specified by Order of the Ministry of Finance, such as being a company that falls under a small and medium sized enterprise listed in the items of Article 2, paragraph (1) of the Small and Medium-sized Enterprise Basic Act (Act No. 154 of 1963)): the following shares issued by that stock company:

shares acquired in accordance with an investment limited partnership agreement prescribed in Article 3, paragraph (1) of the Limited Partnership Act for Investment (Act No. 90 of 1998) pertaining to an investment limited partnership prescribed in Article 2, paragraph (2) of that Act (limited to one specified by Order of the Ministry of Finance);

shares acquired through electronic public offering handling business prescribed in Article 29-4-2, paragraph (9) of the Financial Instruments and Exchange Act carried out by a person that engages in Type I small-amount electronic public offering handling business prescribed in that paragraph (limited to one specified by Order of the Ministry of Finance);

a designated company prescribed in Article 57-2, paragraph (1) of the Act on Special Measures for the Promotion and Development of Okinawa, among domestic corporations, that received designation under the provisions of that paragraph during the period from April 1, 2014 to March 31, 2027: shares issued by that designated company.

The provisions of the preceding paragraph apply only where the tax return for the year for which the application of the provisions of that paragraph is sought states that the application of the provisions of that paragraph is sought, and has attached to it a written statement concerning the calculation of the deductible acquisition cost of specified shares, the amount of capital gains, etc. on general shares, etc. before application, the amount of capital gains, etc. on listed shares, etc. before application and the deduction under that paragraph, and other documents specified by Order of the Ministry of Finance.

A resident or nonresident who has a permanent establishment prescribed in paragraph (1) who has acquired deductible specified shares by payment on or after January 1, 2026 may, if there is an undeducted amount for specified shares arising in that year (meaning, where the total amount of income from transfer, etc. of shares, etc. before application for that year is less than the total of the deductible acquisition cost of specified shares, the amount calculated pursuant to the provisions of Cabinet Order as the portion of the shortfall pertaining to specified shares specified in item (i) or item (ii) of that paragraph; the same applies hereinafter in this Article), claim from the competent district director for the place for tax payment, at the same time as filing the tax return for that year (including a return under the provisions of Article 123, paragraph (1) of the Income Tax Act (including as applied mutatis mutandis pursuant to Article 166 of that Act) as applied mutatis mutandis pursuant to paragraph (9) of the preceding Article (including as applied mutatis mutandis pursuant to Article 37-13-3, paragraph (10)) or Article 41-15, paragraph (5); the same applies in paragraphs (5) and (9)), a refund of the income tax equivalent to the amount obtained by deducting the amount listed in item (ii) of this paragraph from the amount listed in item (i):

the amount of income tax calculated in accordance with the provisions of Article 37-10, paragraph (1) and Article 37-11, paragraph (1) on the amount of taxable capital gains, etc. on general shares, etc. (meaning the amount of taxable capital gains, etc. on general shares, etc. prescribed in Article 37-10, paragraph (1); the same applies hereinafter in this Article) and the amount of taxable capital gains, etc. on listed shares, etc. (meaning the amount of taxable capital gains, etc. on listed shares, etc. prescribed in Article 37-11, paragraph (1); the same applies hereinafter in this Article) for the year preceding that year (where the provisions of this paragraph as applied mutatis mutandis pursuant to paragraph (4) of the following Article apply, the amount obtained by deducting the undeducted amount for specified shares issued at establishment prescribed in paragraph (4) of that Article from that amount of taxable capital gains, etc. on general shares, etc. and amount of taxable capital gains, etc. on listed shares, etc.; the same applies in the following item);

the amount of income tax calculated in accordance with the provisions of Article 37-10, paragraph (1) and Article 37-11, paragraph (1) on the amount obtained by deducting that undeducted amount for specified shares from the amount of taxable capital gains, etc. on general shares, etc. and the amount of taxable capital gains, etc. on listed shares, etc. for the year preceding that year.

In the case referred to in the preceding paragraph, if the amount of income tax equivalent to the deducted amount prescribed in that paragraph exceeds the amount of income tax on the amount of taxable capital gains, etc. on general shares, etc. and the amount of taxable capital gains, etc. on listed shares, etc. for the year preceding that year (where the provisions of the preceding paragraph as applied mutatis mutandis pursuant to paragraph (4) of the following Article apply, the amount obtained by deducting the amount of income tax equivalent to the deducted amount prescribed in that paragraph) (excluding the amount of incidental taxes prescribed in Article 2, item (iv) of the Act on General Rules for National Taxes), the amount for which a claim for a refund under the preceding paragraph may be made is limited to an amount equivalent to the amount of income tax on that amount of taxable capital gains, etc. on general shares, etc. and amount of taxable capital gains, etc. on listed shares, etc.

The provisions of paragraph (3) apply only where the resident or nonresident who has a permanent establishment referred to in that paragraph has filed by its filing deadline a tax return for income tax for the year preceding that year to which a document stating that the person expects to acquire by payment during that year specified shares specified in paragraph (1), item (i) or item (ii) and other matters specified by Order of the Ministry of Finance is attached (including, where the district director finds that there are unavoidable circumstances, where the person filed that return after its filing deadline), and has filed the tax return for that year by its filing deadline (including, where the district director finds that there are unavoidable circumstances, where the person filed that return after its filing deadline).

A person who falls under the provisions of Article 125, paragraphs (1) through (3) or paragraph (5) of the Income Tax Act (including as applied mutatis mutandis pursuant to Article 166 of that Act) and files the return prescribed in those provisions may, where there is an undeducted amount for specified shares arising in that year of the resident or nonresident who has a permanent establishment referred to in paragraph (3) who died during that year, pursuant to the provisions of Cabinet Order, at the same time as filing that return, claim from the competent district director for the place for tax payment for the income tax pertaining to that return a refund of the income tax equivalent to the amount obtained by deducting the amount listed in item (ii) from the amount listed in item (i):

the amount of income tax calculated in accordance with the provisions of Article 37-10, paragraph (1) and Article 37-11, paragraph (1) on the amount of taxable capital gains, etc. on general shares, etc. and the amount of taxable capital gains, etc. on listed shares, etc. of that resident or nonresident who has a permanent establishment for the year preceding that year (where the provisions of this paragraph as applied mutatis mutandis pursuant to paragraph (4) of the following Article apply, the amount obtained by deducting the undeducted amount for specified shares issued at establishment prescribed in paragraph (4) of that Article from that amount of taxable capital gains, etc. on general shares, etc. and amount of taxable capital gains, etc. on listed shares, etc.; the same applies in the following item);

the amount of income tax calculated in accordance with the provisions of Article 37-10, paragraph (1) and Article 37-11, paragraph (1) on the amount obtained by deducting that undeducted amount for specified shares from the amount of taxable capital gains, etc. on general shares, etc. and the amount of taxable capital gains, etc. on listed shares, etc. of the resident or nonresident who has a permanent establishment referred to in the preceding item for the year preceding that year.

The provisions of paragraph (4) apply mutatis mutandis to the case referred to in the preceding paragraph.

The provisions of paragraph (6) apply only where the resident or nonresident who has a permanent establishment referred to in that paragraph has filed by its filing deadline a tax return for income tax for the year preceding that year to which the document prescribed in paragraph (5) is attached (including, where the district director finds that there are unavoidable circumstances, where the person filed that return after its filing deadline), and the person who files the return prescribed in paragraph (6) has filed that return by its filing deadline (including, where the district director finds that there are unavoidable circumstances, where that person filed that return after its filing deadline).

Where the resident or nonresident who has a permanent establishment referred to in paragraph (3), or, in the case where that resident or nonresident who has a permanent establishment has died during the year, their heir, etc. (meaning an heir (including a universal legatee; the same applies hereinafter in this paragraph), or, in the case where that heir has died without submitting the claim for a refund referred to in the following paragraph by the day before the day on which four months have elapsed from the day following the day on which the heir came to know of the commencement of the succession (or, where the absence from Japan (meaning absence from Japan prescribed in Article 2, paragraph (1), item (xlii) of the Income Tax Act; the same applies hereinafter in this paragraph) of that heir occurs before that day, the time of that absence from Japan), the heir of that heir; the same applies in item (i)), seeks to make a claim for a refund under the provisions of paragraph (3) or paragraph (6), and the case falls under neither the case where a tax return must be filed for income tax for that year nor the case where one may be filed, the following provisions apply:

the resident or nonresident who has a permanent establishment or their heir, etc. may claim a refund of the income tax prescribed in paragraph (3) or paragraph (6);

the provisions of paragraph (3) through the preceding paragraph apply mutatis mutandis to the case where a claim for a refund under the preceding item is made. In this case, in paragraph (3), the phrase "from the competent district director for the place for tax payment, at the same time as filing the tax return for that year (including a return under the provisions of Article 123, paragraph (1) of the Income Tax Act (including as applied mutatis mutandis pursuant to Article 166 of that Act) as applied mutatis mutandis pursuant to paragraph (9) of the preceding Article (including as applied mutatis mutandis pursuant to Article 37-13-3, paragraph (10)) or Article 41-15, paragraph (5); the same applies in paragraphs (5) and (9))," is deemed to be replaced with "from the competent district director for the place for tax payment,"; in item (i) of that paragraph, the phrase "this paragraph" is deemed to be replaced with "this paragraph as applied mutatis mutandis pursuant to paragraph (9), item (ii)"; in paragraph (4), the phrase "the provisions of the preceding paragraph" is deemed to be replaced with "the provisions of the preceding paragraph as applied mutatis mutandis pursuant to paragraph (9), item (ii)"; in paragraph (5), the phrase "has filed the tax return for that year by its filing deadline (including, where the district director finds that there are unavoidable circumstances, where the person filed that return after its filing deadline" is deemed to be replaced with "has submitted the claim for a refund referred to in paragraph (10) by March 15 of the year following that year (or, where the absence from Japan (meaning absence from Japan prescribed in paragraph (9); the same applies hereinafter in this paragraph and paragraph (8)) of the person occurs before that day, the time of that absence from Japan; the same applies hereinafter in this paragraph) (including, where the district director finds that there are unavoidable circumstances, where the person submitted that claim for a refund after March 15 of the year following that year"; in paragraph (6), the phrase "A person who falls under the provisions of Article 125, paragraphs (1) through (3) or paragraph (5) of the Income Tax Act (including as applied mutatis mutandis pursuant to Article 166 of that Act) and files the return prescribed in those provisions may, where there is an undeducted amount for specified shares arising in that year of the resident or nonresident who has a permanent establishment referred to in paragraph (3) who died during that year" is deemed to be replaced with "Where the resident or nonresident who has a permanent establishment referred to in paragraph (3) has died during the year, if there is an undeducted amount for specified shares of that person arising in that year, their heir, etc. (meaning an heir, etc. prescribed in paragraph (9)) may", and the phrase "at the same time as filing that return, claim from the competent district director for the place for tax payment for the income tax pertaining to that return" is deemed to be replaced with "claim from the competent district director for the place for tax payment of that resident or nonresident who has a permanent establishment"; in item (i) of that paragraph, the phrase "this paragraph" is deemed to be replaced with "this paragraph as applied mutatis mutandis pursuant to paragraph (9), item (ii)"; and in the preceding paragraph, the phrase "the person who files the return prescribed in paragraph (6) has filed that return by its filing deadline (including, where the district director finds that there are unavoidable circumstances, where that person filed that return after its filing deadline" is deemed to be replaced with "the heir, etc. prescribed in paragraph (6) has submitted the claim for a refund referred to in paragraph (10) by the day before the day on which four months have elapsed from the day following the day on which the heir, etc. came to know of the commencement of the succession (or, where the absence from Japan of that heir, etc. occurs before that day, the time of that absence from Japan; the same applies hereinafter in this paragraph) (including, where the district director finds that there are unavoidable circumstances, where the heir, etc. submitted that claim for a refund after the day before the day on which those four months have elapsed".

A person who seeks to make a claim for a refund under the provisions of paragraph (3) or paragraph (6) (including as applied mutatis mutandis pursuant to item (ii) of the preceding paragraph; the same applies in this paragraph and paragraph (13)) must submit to the district director prescribed in paragraph (3) or paragraph (6) a claim for a refund stating the amount of income tax for which the refund is sought, the basis for its calculation and other matters specified by Order of the Ministry of Finance, with a written statement concerning the calculation of the undeducted amount for specified shares and other documents specified by Order of the Ministry of Finance attached.

When the claim for a refund referred to in the preceding paragraph has been submitted, the district director investigates the undeducted amount for specified shares that formed the basis of the claim and other necessary matters, and, based on that investigation, refunds the income tax to the person who made the claim or notifies that person in writing that there are no grounds for the claim.

When calculating the interest on refund prescribed in Article 58, paragraph (1) of the Act on General Rules for National Taxes with regard to a refund under the provisions of the preceding paragraph, the period prescribed in that paragraph that forms the basis for the calculation is the period from the day on which three months have elapsed from the day following the day on which the claim for a refund under the provisions of paragraph (3) or paragraph (6) (including as applied mutatis mutandis pursuant to paragraph (9), item (ii)) was made (where the day on which the claim for a refund under the provisions of paragraph (3) or paragraph (6) was made precedes the filing deadline of the return prescribed in those provisions, that filing deadline, and where the day on which the claim for a refund under the provisions of paragraph (3) or paragraph (6) as applied mutatis mutandis pursuant to that item was made precedes the submission deadline of the claim for a refund referred to in paragraph (5) or paragraph (8) as applied mutatis mutandis pursuant to that item, that submission deadline) to the day on which the payment decision for that refund is made or the day on which an appropriation (meaning an appropriation under the provisions of Article 57, paragraph (1) of that Act; the same applies hereinafter in this paragraph) of that refund is made (where there is a day before that day on which the refund became suitable for appropriation, that day).

With regard to the application of the provisions of the Act on General Rules for National Taxes in the case where the provisions of paragraph (3) or paragraph (6) apply, in Article 2, item (vi), (c), 1. of that Act, the phrase "or casualty loss" is deemed to be replaced with "or casualty loss, or the undeducted amount for specified shares prescribed in Article 37-13, paragraph (3) or paragraph (6) (Deduction of Amounts Required for Acquisition of Shares Issued by Specified Small and Medium-Sized Companies, etc.) of the Act on Special Measures Concerning Taxation (including as applied mutatis mutandis pursuant to paragraph (9), item (ii) of that Article)", and the phrase "that Act" is deemed to be replaced with "those Acts"; and in Article 19, paragraph (4), item (ii), (c) of that Act, the phrase ") or" is deemed to be replaced with "),", and the phrase ") of" is deemed to be replaced with ") or Article 37-13, paragraph (11) (Deduction of Amounts Required for Acquisition of Shares Issued by Specified Small and Medium-Sized Companies, etc.) of the Act on Special Measures Concerning Taxation, of".

Special provisions for calculating the acquisition cost of shares of the same class as deductible specified shares in the case where the provisions of paragraph (1) have been applied or a refund of income tax under the provisions of paragraph (11) has been received, special provisions for calculating the acquisition cost of shares of the same class as deductible specified shares in the case where, in those cases, the deductible specified shares are transferred during the year following the year that includes the day of their acquisition, and other necessary matters concerning the application of the provisions of the preceding paragraphs are specified by Cabinet Order.